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On Notice

January 25, 2012

WASHINGTON -- President Obama put higher education squarely in his rhetorical sights during the State of the Union address Tuesday night, calling for plans to reduce the interest rate on student loans, extend popular tax credits and shore up support for community colleges’ job training programs.

The president conveyed a brief but forceful message to the nation's colleges and universities: "You’re on notice."

“If you can’t stop tuition from going up, the funding you get from taxpayers will go down,” Obama said, drawing immediate applause. “Higher education can’t be a luxury -- it’s an economic imperative that every family in America should be able to afford.” Although the speech did not offer any additional details about that warning, a document the White House published accompanying the speech said that the president would propose to "shift some federal aid away from colleges that don’t keep net tuition down and provide good value."

The president’s pugnacious speech, intended in part to fire up Democrats as Obama’s re-election campaign gets under way, echoed some familiar themes in its list of higher education proposals. As he has in previous State of the Union speeches and more recent public appearances, Obama praised community colleges, called for spending more on federal student aid and preserving federal research money from cuts, and hit heavily on a recent focus: keeping college affordable.

Amid increasing concern about student debt -- calling on an oft-cited statistic, Obama said student loans have now outpaced credit-card debt -- the president urged Congress to forestall a planned increase on the interest rate on federal student loans, which will double to 6.8 percent in July if no action is taken. Obama also proposed doubling the number of federal work-study jobs in the next five years.

Keeping the interest rate on subsidized loans at the current 3.4 percent would cost about $5 billion per year, although estimates vary. Doubling the work-study program would cost about $1 billion more, said Mark Kantrowitz, publisher of FinAid.org. In an uncertain budget environment, when the Pell Grant -- backbone of the federal student aid programs -- seems to be constantly threatened with cuts, it’s unclear where the money would come from.

“Given the fierce budget battles that have been waged so far in the past two years, there’s a high amount of doubt that that interest rate can be kept down,” said Justin Draeger, president of the National Association of Student Financial Aid Administrators, adding that he was pleased with the president's focus on higher education issues and support for financial aid programs.

The president also called for making permanent the American Opportunity Tax Credit, which provides up to $2,500 for tuition expenses. But he did not mention the Pell Grant, which for the past two years has been the focus of the administration’s federal student aid efforts.

The proposals would benefit both low- and middle-income students: about two-thirds of subsidized loan recipients come from families with incomes less than $50,000 per year. But only about half of those who benefit from the tax credit are considered low-income, Kantrowitz said. Shoring up the Pell Grant, instead of using federal money to expand work-study, cut the interest rate or extend the tax credits, would do more for needy students, he added. 

“These proposals seem to be aimed to some extent at the middle-income families,” Kantrowitz said. “That’s not unexpected in a presidential election year: middle-income families are more likely to vote.”

Community colleges, a major focus for the Obama administration in part because of their link to job training, were an early focus in the speech. But few ideas put forward in that section were new: the president called for partnerships between community colleges and private sector companies and streamlining job training programs to turn the the colleges into "community career centers." 

And community colleges, with their low tuition rates, were seemingly exempt from the harsher portion of the president's speech: telling colleges they were "on notice" to stop tuition increases. College affordability has emerged as a major theme for the administration in recent months, beginning with a speech from Education Secretary Arne Duncan at the Federal Student Aid conference in November. In the State of the Union address, Obama mentioned his December meeting with college presidents to discuss affordability and productivity. And administration officials, including Duncan and Vice President Joe Biden, have kept up a drumbeat on college costs, with Biden most recently causing a stir by blaming professors' salaries.

Tuesday night, Obama acknowledged that the states also have a role to play: "It’s not enough for us to increase student aid,” he said. “We can’t just keep subsidizing skyrocketing tuition; we’ll run out of money. States also need to do their part, by making higher education a higher priority in their budgets. And colleges and universities have to do their part by working to keep costs down.”

How states would be held accountable was not clear. One possibility is permanent "maintenance of effort" requirements, which in the stimulus bill forced states to keep higher education funding at a certain threshold in order to be eligible for federal grants. While the threat to colleges was more direct, just what federal funds might be withheld remained an open question.

“What I’m struck by is how little we know about what the administration intends, even after the speech has concluded,” said Terry Hartle, senior vice president for government and public affairs at the American Council on Education.

More details may emerge Friday, when Obama is scheduled to speak at the University of Michigan, where his speech will focus on college affordability. And even when the administration’s proposals are clear, there is still Congress to consider. While keeping college costs low appeared to be a bipartisan applause line, cutting the interest rate seemed to draw approval largely from Democrats.

“The fact is, a lot of this is going to have to go through the meat grinder on Capitol Hill,” Hartle said.

 

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